SAIL, the largest steel producer in India, has seen sales impacted as demand cools in India's auto, consumer goods and construction sectors, which count among its major customers.

The economy's budgeted growth rate for 2012/13 was expected to be 7.6 percent, but it only achieved 5.5 percent in the June quarter, the slowest in three years.

The state-owned steelmaker, which manufactures a range of products such as cold rolled coils and sheets, pipes, wheels and axles, reported a decline in net sales to 106.63 billion Indian rupees from 108.37 billion a year earlier.

Increased fuel costs and other expenses plus higher wage expenses, from a new salary agreement applicable since January 1, also contributed to lower operating margins.

SAIL said net profit rose to 5.43 billion rupees in the three months to end-September from 4.85 billion rupees a year earlier. A Reuters poll of brokerages had estimated on average net profit of 7.3 billion rupees for the quarter.

"The results were below our estimates and were a disappointment on the operational front," brokerage ICICIDirect.com said in a note after the announcement.

Most analysts had expected the company to report higher sales volumes for the quarter and benefit from a decline in coking coal prices globally. SAIL imports 75 percent of its coking coal requirement.

SAIL reported sales volume of 2.26 million tonnes compared with 2.81 million tonnes a year ago. Earlier, it had reported a 4 percent increase in saleable steel output at 3.18 million tonnes.

SAIL, with annual capacity of about 14 million tonnes, is the largest steel producer in India, but lags Tata Steel's (TISC.NS) global capacity of about 27 million tonnes. Under an ongoing expansion programme, the company expects to increase capacity to 18 million tonnes by March-end.

SAIL shares closed lower after the results announcement, down 1.2 percent in a Mumbai market that ended 0.3 percent lower. The stock, valued at $6.3 billion, have risen just 1 percent so far in 2012, underperforming a 22 percent increase in the main stock index. (Reporting by Nidhi Verma and Prashant Mehra; Editing by Mike Nesbit)

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